I agree that China has enough liquidity to invest more internally. But the
primary responsibility is first to keep China safe. Therefore, the investment to
create China's financial leverage was not really to make money, but to maintain
peace, which I think is priceless.

I think you misunderstood the purpose of having financial leverage. It's not
to bribe the US administration into controlling the neocons. The world already
understands that since it owns a large amount of dollar denominated assets, all
it needs to do is sell some of those assets and collectively it would be enough
to collapse the US economy, since US is a debtor nation and really doesn't have
liquidity to payoff all those sold assets. That fact alone, together with the
knowledge that China and the rest of the world hold huge amounts of dollar
denominated assets, is enough of a financial deterrent for this administration
to keep the neocons in check.

Someone mentioned that China sold out the September Treasury auction. I
cannot confirm if it was in part or whole. Anyway, it wasn't surprising that
soon thereafter, Powell was sent to China in October to reaffirm the "One China
Policy". Also, did you notice Greenspan increased interest rates this week? This
further strengthens my third point. Without China's financial help, we would be
looking at higher interest rates and inflation.

One main reason countries try to manipulate currency is to gain a trade
advantage. But if both currencies are pegged together, there is no advantage.
China can afford to peg the currency since it's a saver nation with liquidity.
Eventually, US will need to take action to support its own currency. Otherwise,
it will no longer be trusted as a de facto currency reserve, nor a
petrocurrency. China already knows that so there is no fear to continue pegging
to protect its trade and existing investments. Now, let's say that the neocons
do something that so anger the world that countries dump large amounts of dollar
denominated assets, China can do likewise because while it holds a large
portfolio, that portfolio relative to the entire Chinese economy is relatively
small. As you know, China is already diversifying its currency portfolio and
including a larger percentage of Euros just for this possibility.

Hyperinflation is largely due to supply and demand. The world is already
adjusting their portfolio, moving more to Euros, so the demand of dollars will
obviously decrease. Now if the US economy continues down this path with more
military spending to try maintaining military hegemony, it will eventually be
forced to print larger and larger amounts of money to service the debts and
deficits, thereby increasing supply way beyond actual demand, resulting with
hyperinflation.

The other issue that affects demand for the dollar is the creditworthiness of
the country itself. If some third world country with a questionable credit
history and weak economy was printing their money, how much demand do you think
they would have for their money given their weak economy and questionable
credit? Once a country defaults, it's like wearing the scarlet letter and other
countries would avoid future financial dealing with this defaulted country like
they had the financial plague. Therefore, before default as the last resort,
hyperinflation is preferred as the second to last resort.

Neocons have an idealistic plan. But there are holes everywhere on this ship.
In order to carry out PNAC, the neocons would need a much larger military force.
Could we be seeing a draft? If this is the future plan, then military spending
will need to increase exponentially to support the larger military, thereby
weakening the economy even more. Given the weaken economy, and how Iraq is
turning out, perhaps Americans will wake up in time to stop it.

The world already understands it has the economic hammers it can use if US
doesn't keep the neocons in check. Examples include:

Selling dollar denominated assets to collapse the US economy. Rebalancing
more currency reserves to Euros instead of dollars, thereby further weakening
the US economy. Use the Euro as the de facto petrocurrency and currency
reserve, thereby less demand for the dollar, further weakening our economy.

Another idea was bypassing petrocurrencies altogether by going to a direct
barter system. This makes sense because a direct barter system would eliminate
the risk of holding currencies. Countries are already doing this in smaller
transactions that don't involve oil. Let's say the neocons get more aggressive
around the world, I wouldn't be surprised that direct barter will be used not
only for goods and commodities, but oil too.

To continue with your illustration, the frog is in the pot. The pot is on the
stove. The fire is on a slow simmer. The water is warm but still currently
survivable for the frog. The frog can still get a reprieve if the world can feel
safe again from US hegemony. But time is short, and once we pass the point of no
return, the lid of the pressure cooker will be locked and the frog's fate will
be sealed. Optimistically, I choose to think the reprieve is not an illusion,
but a ray of hope, in a world fearfully of US hegemony.